Truckies doing it tough on east coast

K&S, Australia’s sixth-biggest trucking group, has described business conditions on the east coast as “a disaster" as demand for transport services from local manufacturers drops as a result of weak exports and a strong Australian dollar.

Legh Winser, managing director of K&S, told The Australian Financial Review the company was targeting Western Australia’s resources industry for future growth with the aim of having it provide some about 50 per cent of its transport revenue in four to five years’ time, up from 15 per cent currently.

“That’s where all the growth is," Mr Winser said. “The eastern seaboard is a disaster."

About half K&S’s transport revenue (the company also distributes fuel through K&S Fuels) is derived from customers in steel, paper and packaging. But these industries are faltering as the strong dollar weakens interest in Australian exports, according to Macquarie Research, which this week lowered its 12-month target price on K&S to $1.43 from $2.25 amid concerns over the group’s ability to increase sales outside WA.

K&S’s stock price has dropped 37 per cent in the year to date, closing at $1.41 yesterday.

Related Quotes

Company Profile

The stock has emulated the share price declines of steel customers such as BlueScope Steel as demand for the transport group’s services from its traditional customers falls.

David Simon, the chairman of the Australian Trucking Association, said trucking groups were also being hurt by increased imports from a range of countries – including China and Turkey – as products such as water pipes (traditionally made in Australia) were increasingly brought in from overseas, and high fuel prices, which some companies have struggled to pass on.

“There are companies large and small going broke," he said.

There are about 40,000 operators in the national trucking industry, most with five or fewer employees.

The four largest operators – Toll Holdings, Linfox, Star Track Express and TNT Express – only compose 15 per cent of total sales.

To build up a presence in WA, K&S acquired two companies last year, Pacific Transport and Regal Transport Group.

Pacific’s business is concentrated on Broome and Derby, while Regal, which is expected to contribute more than $50 million to K&S’s top line this year, is focused on the Pilbara.

While remaining confident that WA’s resources sector “is definitely going to explode", Mr Winser cautioned that some projects were taking longer to start than expected. “Some of them are start-stop," he said.

K&S transports equipment used in mines, such as dump trucks and shovels.

Mr Winser also underscored the difficulty of finding qualified employees and providing accommodation for them. “The biggest problem is going to be people."

Like Linfox, which has spent millions of dollars buying houses up and down the west coast to shelter truck drivers overnight, K&S has been investing in property.

It owns about six houses and is planning on buying more to provide homes for its managers.

K&S stressed that there was plenty of work to go around in WA. But it said the way transport groups operate was changing as equipment was manufactured overseas in parts and brought into Australia to be put together.

Ten years ago, equipment would be manufactured in Perth and driven up to the Pilbara, Mr Winser said. “Now it comes into Port Hedland [on a ship] and goes to the mines."

Despite the opportunities for K&S in WA, Macquarie remains sceptical that any increases in sales revenue from the state will be enough to counter the drop in demand from the steel industry.

As well as urging K&S to make diversification a priority, the bank suggested it considered a restructuring to simplify its group structure and cut costs.

More than half of K&S’s shares are held by a private company, A.A. Scott, founded by trucking magnate Allan Scott who died in 2008.Mr Scott bought K&S in 1988 and took it public.

A.A. Scott also owns Scott Transport, which is private, and most of Scott Corporation, which specialises in the transportation of coal, gas and other hazardous materials, such as chemicals.

Macquarie argued that combining the public and private arms of the Scott companies would create a more diverse customer base.